Friday, 29 January 2010


It's been an interesting week for conferences, not to say something of a conference fest. There have been four or five running concurrently in London, and a Thoroughbred Breeders' Conference in Ireland. I was called at the start of the week by a conference organiser who wanted to know what the industry needed in terms of conferences. "Fewer of them" was probably not the answer she wanted.

Still, there were some interesting comments made, as well as some fairly shocking ones. Hearing that the RGA was described by a racing Chief Executive as as ‘shabby’, ‘discredited’, ‘myopic’ and ‘old-school’ certainly fell into the latter category, but there were some more progressive and somewhat less personal views aired as well.

One gentleman who approached me after I had spoken to the European Casino operators said to me that he agreed with my argument about the need for quicker regulation to be enacted if Europe is to retain control of its destiny, from a macro-economic perspective. But his concern, he said, was that the market couldn't sustain more than a handful of operators. It was not sensible, in his view, just to set the regulatory standard and to license anyone who passed it, because it would be impossible to control the thousands of companies who would operate in your country.

Surely, if the UK market proves anything, it is that when markets are liberalised, they actually settle very quickly: although you need to make sure that you offer a complete range of products to cover all the variations of consumer demand, a handful of operators can actually fairly easily cover the bases that are needed. In other words, if consumers do, as I often suggest, find the product they want at the price they want it in an internet world, you don't need more than 20 or so operators to cover all tastes.

It's interesting, with that in mind, to ponder exactly why there are 5,000 gambling operators out there (by the estimates of the French government's Durieux report). I would argue that the reason is precisely because governments try to criminalise the activity of betting. I've worked in this industry for 10 years and I can't name more than about 30 operators internationally. How would an average consumer be able to do more? It's only multiple fragmentation - the direct result of prohibition - which creates so many options, which by definition (or perhaps design) are impossible to police.

Only in Australia

Hearing someone from the PMU accuse the private betting industry of being money launderers reminds me of the time I went in to see the Australian Liberal MP Bronwyn Bishop, seen by some as Australia's answer to Margaret Thatcher.

I was living in Australia, trying to get Betfair a licence to operate out there (which we eventually succeeded in doing). Ms. Bishop said in parliament that we might be a front for Al Qaeda to launder money, and our lobbyists secured a meeting a few days later so that I might meet her face-to-face.

I followed my advisor, the former Liberal Party Treasurer Michael Yabsley, into the room, looking terribly English in a double-breasted suit.

"Well Bronnie..." said Michael as we walked in. "Let me introduce Mark Davies to you. I made sure he left his turban at the door."

France and Germany

A couple of interesting takes from European monopolists reached my ears this evening from the International symposium on the future of European racing taking place in Dublin.

The delegate from the PMU apparently told the audience that the French government happened to decide to open its market slightly, and approached the European Commission to ask their advice on how to do it. The PMU also take the view that the Commission recognises that monopoly pari-mutuel is the best way to fund racing, and that all private operators are money launderers. Indeed, his view was that the Santa Casa judgment "proved" that private operators launder money. Crikey. I guess it's not the first time we've heard that accusation.

A German presenter followed. He told those present that all private operators in Germany have 'decided to move offshore'. He spoke for 20 minutes, and made no mention at all of the German State Treaty.

What was the title of the conference again?

Richard Dunwoody in the Sporting Life

I never commented on a recent article by Richard Dunwoody which appeared in the Sporting Life.

But a friend at the BHA tells me that it has caused "apoplexy" on High Holborn. I find that hard to believe.

It seems to me that it is a well-reasoned, thoughtful piece. Yes, it undermines the BHA position; but surely they must already be aware that many in racing either do not share their view, or feel that their argument has not been convincingly made. Given that this article does no more than underline that, I doubt it could really lead to such anger.

In fact, I'd have thought we should all welcome a coherent debate on the subject. So, even if the BHA remains convinced (ten years on and without yet having persuaded any independent observers, such as DCMS, Treasury, Sir Philip Otton, etc.) that they have a case that somehow Betfair doesn't pay the right levy, they surely can't really be concerned about anyone putting a counter view to that? Having people do so gives them a good opportunity to start making a clear rebuttal of the points in Betfair's favour. I'm looking forward to hearing it!

Thursday, 28 January 2010

Foley-Train report

The report by Jason Foley-Train, the DCMS official, in relation to sports betting (legal, commercial and integrity issues), written up in various places today, landed on my desk with a thud yesterday. It's a very detailed analysis, the conclusion of which appears to be that the argument that sports should be paid by betting just for putting on the show (in other words, the argument as advanced by SROC) is 'not robust'.

It also makes the very interesting point that while the betting industry is attacked for not paying any tax (or existing in tax havens), many sports governing bodies do much the same.

It will be very interesting to hear the response from SROC, or the individual sports; or any of those who have argued for a statutory levy (Lawrence Donegan of The Guardian, perhaps, since he regularly has a pop at me (such as here and here) for making the opposite case).

When we published a pamphlet last year making our case about why Betfair's levy payments are the right payments, we hoped for a response from the racing industry to the points that were made. Sadly, none were forthcoming. There was no rebuttal or even substantive response; just an accusation that the document was 'propaganda'.

I hope that the reaction of the sports is not the same to this document. If there's a good counter argument to Jason Foley-Train's analysis, let's hear it. I'm all for a good debate. It's when the response is 'we don't care what you say or how you support your argument, we think the opposite just because that's what we want to think' that I get frustrated.

Wednesday, 27 January 2010

The tax differential?

The Deloitte/Ladbrokes report published today re-awakens the old argument that being a layer on an exchange is the same as being a bookmaker. Sometimes, this argument is used to say that it is therefore unfair that exchange layers are not taxed and levied as if they were bookmakers. Today, it is to maintain that the tax and levy take is somehow diminished because returns that should be captured are not. Either way, it is argued that £100 lost to a “bookie” makes £10 in levy and £15 in tax; but every £100 lost on Betfair generates 50p and 75p.

That is, of course, true in a one-bet world; but only if the punter loses that bet. The punter who wins his bet takes £100 off a traditional bookmaker who then pays no levy (or tax) at all. In fact, the next punter who loses £100 to the bookie only allows the operator to make up for his earlier loss: the traditional bookie's profit is still zero, so he still pays no levy or tax. In a two-bet world, the bookie could still have contributed nothing.

In fact, if you continue all day with one punter winning £100 and another losing £100, then Ladbrokes can take an infinite number of bets and pay no levy or tax because it would make no profit. In the same scenario, Betfair would pay 50p every time in levy and 75p every time in tax (given that one punter wins, pays Betfair its commission of £5, and Betfair pays 10% of that in levy and 15% of it in tax; so you might prefer to say an average of £3 in commission (which is charged on a sliding scale from 2-5%) and therefore 30p and 45p, but the argument is the same)).

Of course, in reality traditional bookmakers do not allow punters to win and lose exactly £100, unless they (the bookmakers) are very bad at what they do (which they aren't). When a punter loses £100, another one wins around £85, leaving profit on which levy and tax are paid. Bookmakers do not pay levy and tax on the £100 lost, but on the difference between what money is lost and what money is won – or, profit. And their higher profit margin does not necessarily make them more money. (If it did, in any industry, then why would anyone offer a lower price? Why is Walmart - a business which set out to cut margin - one of the world's most successful companies? How can Ryanair make more money than British Airways?)

Most bookmakers build a risk margin into their pricing to account for ‘bad’ results, and in general the risk premium is about 1.5%-2% per possible outcome. An 8-runner horserace has a 12%-15% over-round just to account for the risk; a football match, somewhere between 4 and 6%. Betfair takes the need for a risk margin out, because it uses its technology to enable it only to accept a bet if it can find a person or group of people who have the opposite view. So its margin for racing (with multiple outcomes) is no different than its margin for a tennis match (with two): only the operator’s margin remains in the price – consistent across all products - which is what makes Betfair’s prices consistently better: it doesn't add the traditional bookmaker's additional protective margin to account for risk.

Most people do not realise that this is what drives Betfair’s pricing, but think Betfair’s prices are better because they are “person-to-person”. Actually, Betfair is ‘many-to-many’ (rarely do any two bets match perfectly), but in any case, this has no effect on pricing. Betfair is merely matching supply and demand like any other bookmaker, and differs only by doing so perfectly, rather than approximately.

The traditional bookmaker's argument, which returns in the Deloitte report, is that Betfair’s prices are set by people who are really bookies acting without permits, laying prices just as a bookie does and therefore conducting the same business on Betfair with none of the associated costs. The ‘unlevel playing field’ argument says these people can offer better prices because they don’t pay levy and tax that they would have paid, giving them lower costs and somehow reducing the tax (and levy) take. It raises a simple question: if Betfair prices are better because they're generated by bookies without costs, then why are the odds offered by bookmakers offshore, who pay neither 10% levy nor 15% GPT and therefore don't have these costs either, not in turn significantly better than those onshore? You would expect them to be the same prices as Betfair's prices, not as traditional onshore bookies' prices. but in fact, the reverse is true. The answer is that it isn't the tax and levy cost that is determining the additional margin: it is the risk.

No-one is denying that there are former bookies who now play on Betfair. That would be absurd. But there are also former airline pilots who travel in passenger jets. They’re still in the air, perhaps even on the same routes; but they aren’t in control of the plane, they don’t need a licence to fly, and they aren't taxed as if they were pilots. Bookies who become punters take their chances like other punters - without contact with customers, and with no means of attracting business. On the whole, it is true that punters lose and operators win. But winning punters aren’t bookies just because they get it right,and there are plenty of examples of winning customers with bookmakers who look terribly professional but are still punters nonetheless.

So is it true, as stated in the Deloitte report, that 'therefore the levels of tax and levy are smaller compared to traditional bookmakers'? Or, to put it another way, does Betfair really enable non-payment of levy and tax because its layers should be paying levy too, on the grounds that they are bookmakers, and if they paid levy and tax as individuals, the levy and tax take would go up?

No, it isn't, for the simple reason that, contrary to conventional wisdom, the words ‘bookmaker’ and ‘layer’ are not inter-changeable. On Betfair, a layer is simply a punter (and no punter, professional or otherwise, pays levy or tax) who takes a view that the price over-states a horse’s chance of winning (just as a backer thinks it understates it).

In non-horseracing contexts, this is clear. A seller of shares thinks a company is over-valued, and a buyer that a company is under-valued. Neither the buyer nor the seller is a stockbroker. Equally, punters bet at Ladbrokes that Tiger Woods will not win the next Major. They do not suddenly become bookies as a result, any more than Ladbrokes suddenly becomes a temporary punter. But the exact same bet placed on Betfair requires you to lay Tiger Woods. It is a basic fact that it is not through expressing a negative view that you become a bookmaker, even if it does make you a layer So, what does make you a bookmaker?

The answer, in legal and regulatory terms, is that you provide a means to bet; accept stakes; hold money on behalf of clients; guarantee to pay out; can offer incentives to bet; ensure that the vulnerable are not taken advantage of, and that underage people do not bet; and you keep crime out. All of these things, Betfair does; not one can be done by any clients (of Betfair or any other bookmaker). Customers (Betfair and elsewhere) simply express their view on an outcome; present the total sum of money that they might lose; and, if they win, collect. Bookmaking has nothing to do with being the first to make a price (a bookie is perfectly entitled legally to change his price); nor about which side of the outcome you take. It is about being in a position of trust vis-a-vis the customer. For this, you require a licence which allows you to do things like tout for business.

For almost ten years now, the traditional bookmakers have pushed the argument that ‘Betfair layers are bookmakers’, as the Deloitte report published today implies. In reality, backing and laying are entirely interchangeable, and it’s just a question of how good you are at maths. Laying on Betfair is betting an outcome will not happen: layers enjoy no advantage over backers; and most Betfair customers make both back and lay bets. Betfair data, examined at great length by the Treasury, shows that a punter predominantly backing is as likely (or unlikely) to be profitable as a punter predominantly laying.

Customers who bet with traditional bookmakers are not taxed and levied; the licensed bookmaker is. That licensed bookmaker pays tax and levy on the differential between what it takes in from losses and what it pays out in winnings. Exactly the same is true on Betfair. No amount of repeating an argument which doesn't stand up to scrutiny is going to change that, so can we finally, a decade later, move on?

Deloittes/Ladbrokes report

I'm afraid I haven't read all of the Deloitte report published today by Ladbrokes.

I was all set to: I think it is important to get the full picture, and I take my hat off to Ladbrokes for having commissioned it. I agree entirely with their Chief Executive, Chris Bell, when he says that, "This report comes at a crucial time for the industry and will help inform the Government and stakeholders about the important contribution the industry makes to employment and taxation in these difficult economic times. We hope it will contribute towards more informed policy making and help remove much of the uncertainty that has surrounded the taxation and regulation of our industry in recent years."

But having read seven lines of it, I don't know if it is worth me reading any further. They're the seven lines in a box entitled 'The tax differential', on page 38, and they read as follows:

"Acting on a British betting exchange, a layer can offer bets and profit without paying taxes or levies as a licensed betting operator does (10% of levy on profits on British racing, and 15% betting duty). Efficiency is gained here as instead of the layer paying tax and levy on their gross profits, the exchange pays tax and levy on its commission which is usually circa 3% on the layer's profits. therefore the levels of tax and levy are smaller compared to traditional bookmakers."

This is the same tired old argument which has been run by opponents of Betfair for ten years now. People tried to get MPs to believe it as the Gambling Bill (now Act) was debated, and got nowhere; and then they tried to get the Treasury to believe it, but the Treasury spent 18 months analysing the true picture and rejected it as a massive over-simplification. The Treasury accepted, after detailed and lengthy study both of customer behaviour and of mounds of empirical evidence, that in fact, Betfair's customers (backers or layers) are not bookmakers avoiding tax and levy at all. If you want the arguments why, you can find them here.

Personally, I think it's a shame that a statement that is so obviously political should appear in this report. Ladbrokes have a good factual story to tell: they are leaders in an important industry, the contribution of which needs to be recognised.

How that cause is helped by including within the report a bit of betting-industry political in-fighting with plenty of history, I don't understand. It makes it too easy to dismiss a report whose publication should be welcomed.

Tuesday, 26 January 2010

Europe on a slow road to nowhere

I spoke yesterday at the International Casino Conference in London.

The audience comprised regulators from monopoly countries and operators of monopoly businesses in Europe, so I didn't turn up expecting to have many friends. But I was struck, at the end, by how many people came up and told me that they agreed with the position I outlined, and how they find the position adopted by leaders on their side of the business frustrating.

The main thrust of my brief talk was one which will not be news to other online betting operators: that while European governments either sit on their hands or legislate in a way which outlaws internet gambling, consumers vote with their feet and go and bet wherever they choose. The impact of aggressive legislation is not to stop people betting, but to make them bet with operators other than the 20 or 30-odd brand names that we have all heard of. Given that the French government's own analysis estimated that there are around 5,000 gambling sites on the web, it's not as if they are spoilt for choice.

My comment that it would be helpful if European regulation took into account the reality of consumer behaviour was answered by Paul Herzfeld, the CEO of Casinos Austria International, with the statement: "Consumers might want to drive at more than 130kph, but that is the law."A sentence earlier, Mr. Herzfeld had also said that the difficult part of the debate between the state operators and the "private" industry (many of whose members are actually listed on the stock exchange) was that his company was regulated and the others were not.

It seems to me that in those successive sentences, Mr. Herzfeld summed up why this debate is not moving forward. On the assumption that the comments were based on a lack of knowledge rather than a conscious effort to misinform, I'd like to set the record straight on both issues.

To take the second, first: Casinos Austria may be licensed in Austria; but Betfair is licensed in the UK, as well as Australia, Italy and Malta. In other words, not only are we licensed, but we are licensed by more places, and therefore more heavily regulated (by virtue of different countries having different requirements) than his company is.

As regards the first, the analogy completely misses the point. No-one is suggesting that consumers should be allowed to travel at more than 130kph if 130kph is deemed to be the speed at which they are safe. But once we've established that the speed limit is set, would any government insist that a consumer had to drive a Volkswagen but couldn't drive a Volvo? Or could travel by car, but not by train? If not, on what basis must a consumer be allowed to bet with a State-owned operator but not a non-State-owned operator regulated to the same standard?

The implication of Mr. Herzfeld's statement was that Betfair somehow tries to avoid regulation, and wants to break the law. Nothing could be further from the truth: we set our business up making clear statements that we would stick to the law even if we thought it was stupid (we never, for example, took bets out of the United States, but instead blocked access to us from there); ;and we have made quite clear that we will submit ourselves to regulation and tax in states around the world, providing that regulation is equitable and consistent across all operators and does not seek to single us out.

The point is not, therefore, that the online gambling industry is seeking to avoid being regulated. It is that operators are being told that they cannot have a licence. The reasons we are given for that do not bear scrutiny. We are told, for example, that we 'cannot deal with problem gambling issues', when it is manifestly clear that we do so at least as well, and normally better, than existing monopolists. Let's not forget, for example, that the PMU in France introduced a means of ensuring its customers are over 18 only in June last year!

While operators like us are denied licences (and the French, for example, have said that they want to ban 'our way of betting', as if the fact that we manage our risk perfectly through technology is somehow problematic: you would think that it was a bonus, given what is going on in the world), consumers are voting with their feet. If they can't find the product they want at a fair price within their own jurisdiction, they go and find it on the web. They don't think of it as breaking the law: they think of it as exercising their consumer right to a fair product at a fair price. It's not as if they are buying something that isn't sold in their home country; it's that they are buying it in a package that attracts them, at a price which they think is fair value.

The impact of this in the longer term is going to be significant. Governments that think they are protecting their tax revenues by protecting their monopolies and keeping out competitive product are simply losing consumers to sites much further afield. We know from our own commercial experience that once you have lost a customer by seeing him sign up to a different site, it is very difficult to get that customer to move. In short, this game is a land-grab, and, by legislating (on purpose) to keep out best product and best price in order to protect slower-moving national operators, European governments are not even pitching for the business.

Monday, 25 January 2010

Chinese match-fixing story

The story out of China about match-fixing and corruption in sport, as reported in the Guardian a couple of weeks ago but for some reason only picked up by PA Sport today, seems to me a classic example of two points that I have made repeatedly (boringly, even!) over the years.

I've written about match-fixing before here, and talked about it at great length in the past, so I will just reiterate the two main points which are underlined by this story.

First, the only people who can corrupt sport are people who are involved in it. There is no way I can fix the result of any match without the collusion of a player, team, coach, or official involved. I accept that I may become the corrupting force behind a fixed match, but ultimately I cannot fix it without the collaboration of someone or some group directly involved in the event - someone, that is, who falls under the jurisdiction of the governing body of a given sport. Education of participants in sport is therefore a key ingredient to rooting out corruption.

Second, the threat to sport comes not from the legal, regulated market, but the illegal market. If all betting were transparent and all funds could be tracked, then it would be easy to establish who was coercing the players, and who was making money.

Sadly, neither of these points is yet publicly accepted by governments or by sporting bodies. this is because accepting them makes it harder to argue for monopoly operators or sports levies from regulated betting companies.

Sunday, 24 January 2010

Another Sunday, another float line

It's two weeks since the last time the Sunday Times reported something about the "Betfair float".

Today it had
a different line but I'm afraid our line hasn't changed...

Our float has been speculated on for more than five years now, and will continue to be until the day that we announce it and do it, if that ever happens. Until then, we won't comment on speculation. That's what I told the Sunday Times on Friday when they called, and it's what I told everyone who phoned as a follow-up today.

Not that I'm complaining about the calls, I hasten to add. It demonstrates what a sexy story we are or would be, that the media are so desperate not to find that someone else breaks the story, if it happens. And I'm not going to moan about that! :)

Friday, 22 January 2010

Market managers?

Word reaches my ears that the latest great idea doing the rounds from those insistent on treating Betfair differently from other bookmakers is to argue that Betfair is actually a 'market manager', and should be distinguished from other fixed odds bookmakers as a result.

The basis of this argument is presumably that Betfair does not take any risk on its singles bets.

Over the years, people have got very hung up on what the level of risk you take does to your status. This is curious for a number of reasons, not least of which is that if risk-taking were a pre-requisite, then we could change our matching algorithm to offset 99.9% of the risk and change status. Or 99.99%, perhaps. What's the threshold of risk that works for you? Am I a 'bigger bookie' if take more risk than someone else? And would it be sensible for any government to base any system of regulation (in any field) on requiring operators to run riskier businesses in order to secure more favourable treatment?

Risk-taking is not a pre-requisite of bookmaking, and neither is it the domain of bookmakers. Punters take risk, by definition; and it's the bookmaker who is in a position to reduce his risk by balancing supply and demand (that is, his book). We happen to balance ours perfectly (on our singles bets, at least; on our multiples, we take risk). We do that by only accepting a bet if we can offset it, matching supply and demand around the world. We do it perfectly, and quickly, because we built technology to help us. That doesn't mean we're doing anything different from a bookie who calculates his risk in his head, any more than a supermarket is doing something different from a small shopkeeper by having an electronic check-out instead of using a pencil and paper.

I accept that this has been questioned again and again: some have commercial interests in making sure it is; others presumably can't understand the mechanics of our business and therefore mistakenly think that regulation should be predicated on the way the business is marketed. But the argument that we can be distinguished from any other fixed odds bookmaker just by virtue of our risk appetite and our means of risk management has actually gone to court in the past to be properly debated an analysed - in the Constitutional Court of Australia.

The result was that seven judges agreed that we are, if you look at the mechanics of our business, just like any other bookmaker; and none came to the opposite conclusion.

A 7-nil whitewash is fairly comprehensive...

Thursday, 21 January 2010

Onshore and offshore

I was at a breakfast this morning with many in the gambling industry and the racing industry, talking mainly about onshore and offshore bookmaking.

The comment was made that when the current Government first looked at gambling, with the publication of A Safe Bet for Success (when Tessa Jowell was Secretary of State), the document it produced was littered with warm words about Government wanting to work with the gambling industry. The Government duly embarked down the road of putting in place legislation that would make the UK a "world class" jurisdiction; and then in the space of literally six weeks, faced with an onslaught from the Daily Mail, it bottled it and produced regulatory and fiscal policies that didn't match. The offshore industry it wanted to entice to Britain stayed put; and onshore operators, which at the time were rather greater in number than today, battled with their disadvantageous position.

On this, I think everyone was agreed. So too, I suspect, the theory that an in-coming government, assuming a change, is bound to start from a position of wanting to correct what went wrong. In theory, it's easy enough: support the industry (in terms of facilitating its ability to trade internationally), and, to the extent possible, reduce the cost of doing business at home. This is what government tries to do for every industry out there, and while it can't always get it right - high-profile departures like Dyson show that - on the whole the aim is clear and such policy can in broad terms be pursued.

But between the time of the Gambling Act and now, the disadvantaged onshore industry has, with only two exceptions, given up and gone away. The result is that nearly every remote gambling operator in the world now sits outside the UK's jurisdiction, where it is under no obligation to contribute to tax, levy, foundations to help problem gamblers, or anything else.

An incoming government wanting to put right the mistakes of the past would therefore have to look at reducing the rate of UK gambling tax (currently 15% of gross profits), which makes Britain fundamentally uncompetitive. But to come back onshore, overseas operators need the overall cost of doing business in the UK to be reduced, which immediately means you get into a circular argument: you want people here, because you want to make sure they are paying their way; but if they pay their way, you raise the cost of them doing business.

The sensible policy would obviously have been not to lose them offshore in the first place, and it seems absurd to think that it has taken William Hill and Ladbrokes moving just in the last few months for this issue to come to the front of many British minds. But, given that they have now been lost, what can be done to get them back?

I blogged about the carrot and the stick approach earlier this month, when the UK Government made an announcement that had a slightly 'if you can't beat them, join them' feel to it. But in reality, standing up for the British industry in Europe, which I would love to see happen more, means standing up for its right to operate cross-border under the terms of Article 49 of the European Treaty within a properly-regulated system. And I'm not sure how you can do that at the same time as putting in place restrictions on EEA-licensed operators which adhere to your own regulatory standards, just because you're not happy that they aren't paying something to someone else. The law is about regulation, not tax, unless you want to get into a fight at the ECJ.

On that basis, though, I can picture a future scenario where a more Eurosceptic UK government delights in being challenged in the ECJ by an offshore operator for putting up internal market barriers, on the grounds that it could paint itself as standing up for British interests in keeping out "unwanted" offshore gambling in the face of a European Commission which insists on internal market rules. This would be fine, on the face of it, were it not that you are back to the problem you started at: there are only two operators left under British jurisdiction, and UK consumers don't for a second distinguish between those two and everyone else. Why should they? Consumers look for the best service and the best price, finding the product they want at the price they want. They stopped being interested in a British kite mark before I was born.

It was commented this morning that 'what needs to be advocated is a modern market approach to these issues', which is right. But in reality, the room would have been split at least two ways about what a 'modern market approach' actually is; and it's while everyone's been having the debate that the industry has developed, or moved, somewhere else. Unfortunately, we're still trying to find a middle ground between the views. Perhaps we need to accept that there isn't one.

Thursday, 14 January 2010

How to fund sport through betting...

News from Australia that Betfair is one of 32 sponsors for the Australian Open which starts on 18th January proves again (if the myriad of Premiership shirt sponsorships from the gambling industry, not to mention deals like Betfair's with Manchester United and Barcelona) how money from betting flows into sport through sponsorship deals that work for both parties, with commercial teams hammering out terms.

It seems pretty obvious. But anyone who has been following the debate in the UK about how sport should get money out of betting will know that while it may be true that individual sporting organisations happily sign deals which land them significant sums of money, attempts to foster commercial relationships between National Governing Bodies of sport (NGBs) and the betting industry have foundered on the fact that sports believe they have a right to money from betting, just for putting on the show; and the betting industry believes it should have something in exchange for whatever cash it outlays.

I've written before, at some length, about why I think the position adopted by sport makes no sense (such as a piece I wrote for the Guardian in December), so I won't reiterate all those arguments. But what I find striking about the agreements we have in Australia (and this latest, with Tennis Australia, is not the only one with an NGB) is the difference in the way that the sports come to the table.

Eighteen months ago, I had lunch with Richard Caborn, the former Sports minister, and Chris Bell, the Ladbrokes CEO. We talked about putting together a Grass Roots Trust for sport, funded by the gambling industry but at arm's length from it (that is, administered by independent Trustees), which we thought could generate something around £3million a year. At the time, that would have meant £10million ahead of London 2012, and our suggestion was that the Trustees, once appointed, might like to consider whether it go towards something in connection with that.

When we suggested it formally to government, we put one condition on it: we wouldn't put money into a Trust only to have a sports levy imposed at the behest of NGBs a short time afterwards. There is a finite pot of money that any gambling operator will spend on sport, and if a levy came about, the Trust would have to be wound up. There was no point in starting something, only to pull it shortly after. So, the condition was that the NGBs should be told clearly that there was to be no sports levy, and should instead accept that betting already supported sport in a number of different ways.

The long and the short of what followed is that nothing happened. The condition was not met, and the Grass Roots Trust idea died a death. The NGBs continue to pursue their quest for a levy, taking their fight to the media, Westminster, and Brussels.

Two months ago, I found myself sitting next to the former Ipswich Chairman David Sheepshanks at a League Managers' Association dinner. Early in the conversation he asked me, "can I get you involved in the National Football Centre?" by which he meant, "will you help to fund it?" I explained to him why we would not get involved with funding sport at that sort of non-commercial level: because we had the threat of the levy hanging over our head, being lobbied for, hard, by the sports. But then I asked him how much he needed. His reply was £5million. Eighteen months had passed since the idea of a sporting trust was mooted, and the National Football Centre was just the sort of thing which it might have funded, had its Trustees decided that the Centre was a better home for it than 2012. The maths hung in the air over our main course.

You might argue that if the sports successfully got a compulsory levy out of betting, through legislation either from Westminster or from Brussels, then the quantum of money raised would dwarf £3million a year. You may be right. But I would suggest that if (for the independent observer who looks at both sides) the argument against a levy is at least as convincing as the argument for it, then it seems a battle not worth fighting - particularly when money is passed up in the interim. Better to reach a deal that works for both sides, since it brings in cash, than to argue a 'right' which is in great dispute.

Perhaps that is the view of the Australians.

Monday, 11 January 2010

Gambling regulation and tax

I was interested to read Ralph Topping's piece about gambling regulation over the weekend in the Sunday Times.

Ralph has always had a harshly negative opinion of DCMS. But in my view, he only gets to the nub of his piece towards the end, by pointing out, albeit obliquely, that it isn't actually DCMS that has caused the problems he alludes to, at all. It is the Treasury.

I often hear UK regulation being attacked for having failed to achieve what it set out to achieve; most recently, in Phoenix at the end of last week, where I spoke at a legislators' conference. But the truth is that UK regulation didn't fail: the government failure was in chickening out of creating a tax regime that matched it.

Putting in place strict regulation, wherever you are in the world, is no use at all if you don't have anyone sitting under it. And in today's world (that is, in the world of the internet) you won't have anyone (or at least, very many operators) sitting under your regulatory umbrella (in any industry) if you don't tax them at a competitive rate. This is true of onshore industries (which can go offshore). And it is even more true of offshore industries (which have no reason at all to come back onshore). It was always perfectly clear that the gambling industry would not come back from Gibraltar for the privilege of paying more tax, and the moment that the government declined to lower its tax, the attempt to regulate anyone other than people already in the UK was up.

Of course, governments believe that they can impose restrictions on companies which are offshore; that they can use, in other words, a stick rather than a carrot to get them back. This is what the British government has done with its latest announcement - effectively saying that as the rest of Europe is taking this approach, Britain is going to try it too. But it seems to me that their confidence in this is misplaced. As the author R.S. Surtees is quoted as saying in The Week this week, 'more people are flattered into virtue than bullied out of vice'. Why, then, do governments always take the bullying route?

The question the British government has to answer - whatever colour it happens to be by the second half of this year - is 'what do we give the gambling industry in exchange for the tax it pays us'? If the answer to that is 'nothing but grief', then whatever sanctions it wants to impose on those offshore (in terms of limiting advertising in the UK, for example), it won't coax anyone back onshore. (Besides, talk of restricting advertising is all very well until the Premier League starts to complain it has lost half its shirt sponsorships; and racecourses around the country have to find replacement backers for races such as the Victor Chandler Chase.)

On the other hand, the gambling industry is fighting multiple battles in Europe, where successive governments, citing claimed support from the ECJ, believe that Article 49 of the European treaty can be ignored within the field of gambling because 'gambling should be a special case'. (Article 49 allows for the Freedom to Provide Services across border: that is, if what you offer as a service is legal in another Member State and you are licensed to do it in your own Member State, then you don't need a new licence to do it in the second country.) If the British government supported its licencees, by doing nothing more than defending its own regulatory system - if it told other European governments that it has good empirical reason to believe that a system of licensing can protect citizens from the potential harm of gambling just as effectively as having a monopoly - then companies might be more willing to sit under its umbrella.

But if all it can do is tax uncompetitively, impose restrictions, and believe that everyone wants a British kitemark of some sort, then it's going to be left Betfair and Bet365 - the only two purely online operators, to my knowledge, that are licensed in the UK. And whatever sanctions it imposes on anyone else will make no difference at all.

Tuesday, 5 January 2010

Match fixing, corrupt betting, and insider trading

Sky News came in this morning to interview me for a piece they are doing ahead of the African Nations Cup. They wonder if enough is being done to deal with match-fixing issues in sport, and they are talking, among others, to Declan Hill, whose book The Fix alleges rife corruption in football..Sky want to know if FIFA are doing enough to keep corruption out.

I get asked a lot about corruption in sport, and I always tell broadcasters the same thing: personally, I don't believe that there is as much corruption in sport as the media seems to fear, but I take the view that there is always the risk of corruption, and therefore any sport should be doing everything it can to safeguard against those risks. Measles isn't rife, but that doesn't mean that you don't inoculate yourself against it to make sure you don't get it.

In a sporting context, that means taking every possible feed from bookmakers, whatever they can offer. Personally, I don't think that information about volumes bet is very helpful, if you don't know what has generated those volumes, which is why I think that, for example, FIFA's Early Warning System (EWS) doesn't do a lot protect sport. If it was all that was available, it would (just) be better than nothing; but personally I find it strange that when sports are offered the named information they need, they don't take it. Unfortunately, though, politics gets involved: some sporting bodies won't take named information from Betfair because of concerns that to do so would somehow be endorsing the company. Imagine that in a drugs context: one company can test for every drug; all the other companies can test for a subset... Would the sporting body really refuse to take information from the stand-out company, just so as not to be seen to endorse it?

That aside, a big problem at the heart of this debate, as I told Sky News, is that 'match fixing' has become a term which covers any multitude of "sins" which differ significantly by degree. For me, there is a huge difference between match fixing (paying someone involved in a sporting context to secure an outcome that would not otherwise happen, for financial reward) and "betting with inside knowledge". The former is clearly corruption; the latter, while at times black and white, has a huge grey area which exercises people to different extents.

As an example: people always quote me the time when Harry Rednapp was named manager of Portsmouth as a 'clear example of inside information'. For me, it was nothing of the sort: Rednapp was trading at 1/100, which means that to win £1, you had to bet £100. That isn't "inside information": that means that it was broadly known that he was going to get the job, and the only question was whether he would live long enough, and not have a huge row in the interim, to allow the appointment to be announced.

Imagine you had been the BBC reporter sent to Fratton Park on the day he was appointed. You know there's a press conference to announce a new manager; and you see Harry Rednapp cross the road with the chairman, half an hour before the scheduled start. Doubtless, you know more - by virtue of your position (both job-wise and in geographic terms) than I would have done sitting in my office in Hammersmith; but if I, in my office, had been prepared to risk £1 to win £100 that between crossing the road and sitting in front of the cameras, something would go wrong, then wouldn't that have been my privilege? And if you'd decided that it was a sporting certainty (and that such a thing does exist), and had been prepared to risk £100 to win £1, wouldn't it have been yours?

Wherever you stand on that, you cannot, surely, equate a bet on that with a bet on a match whose result has been 'bought'? And yet, the two things are continually linked by the media as 'corrupt betting' - so much so, in fact, that the day Rednapp was named, the volume bet on Betfair actually led Five Live Sport!

In my view, until we see the difference between these two things, we will never get to the heart of the true problem of 'corruption in sport' (which, I think, should be defined in this context as cheating for financial gain, rather than cheating to make money betting, given that the latter is a subset of the former). That is, recognising that the source of the big corruption scandals of the sort discussed by Declan Hill in The Fix, or being debated now as a result of UEFA's Champions League investigation, is not the licensed betting market; but the unlicensed, illegal, one.

In the world of drugs, there are two obviously separate worlds: there's the world of pharmaceuticals, and there's the world of illegal drugs - cocaine importation, etc. The first is legitimate, and licensed; the second is clearly illegal, damaging, and has all sorts of harmful knock-on effects.

The two worlds are clearly separate. Sadly, there is no correlation that can be made which allows us to track how much cocaine is imported by looking at aspirin sales in Boots. But were there to be, it would make it no more logical to pin the former on the latter; the latter would merely be giving an indication of the former's prevalence.

In betting, there are also two worlds: the legitimate, licensed industry, which provides a platform for people to express a view (sometimes once in a blue moon, sometimes hundreds of times a day) on a given event; and the illegal industry, which exploits the basic human desire to express a view and put money behind it to make money corruptly, securing the outcome of a sporting contest by buying someone or some people involved. The latter is not a bet at all: it's the achievement of a financial return through a certain, bought, corrupt, outcome - a financial return funded, in turn, by people betting, legitimately, on an outcome they don't know has been bought.

There is no more in common between the corrupt acquisition of money and licensed betting than there is between Boots and cocaine (i.e., zero), but the difference is that in betting, the legitimate market can mirror, and give indications of, what is going on in the corrupt market. This is because the corrupt market is being funded by people who aren't involved in the 'fix' at all. They are just betting with someone who, by virtue of being unlicensed and unanswerable to no-one, can build up huge positions in favour of one particular outcome, such that it makes financial sense to secure that outcome by paying a portion of the money that can be made, to someone who can affect the result.

So, what's the solution?

Well, there are only two reasons why you would want to bet into a black market: either because you cannot get access to a fair price in the legal market (assuming that such a thing exists in your jurisdiction); or because you're a crook. So, make sure that everyone who wants a legitimate bet has legal access to a product he wants at a price that is fair, and Bob's your uncle: you suck the liquidity out of the black market, and make it more difficult for people who want to make money corruptly to do so. Bingo!

Odds on this happening across the world in 2010? Before 2020?...